Shares of ContextLogic (WISH 3.23%), the parent company of the e-commerce platform Wish, plunged 29% on Feb. 24 after it posted its fourth-quarter earnings report. Its revenue declined 57% year over year to $123 million, which missed analysts' estimates by $29 million. Its net loss widened from $58 million to $110 million, or $0.16 per share, but still cleared the consensus forecast by two cents.
For the full year, Wish's revenue plummeted 73% to $571 million, compared to its 18% decline in 2021, as its net loss widened from $361 million to $384 million. It ended the year with just 20 million monthly active users (MAUs), compared to 74 million MAUs at the end of 2021 and 107 million MAUs at the time of its IPO in late 2020.
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Those grim numbers suggest that Wish faces an existential crisis instead of a temporary post-pandemic slowdown like other e-commerce companies. It also explains why Wish's stock now trades about 98% below its all-time high from two years ago. But after that steep sell-off, Wish's stock trades at less than one times its trailing sales -- so should value-seeking investors consider buying a few shares of this hated e-commerce stock?
Wish's business is built on shaky foundations
In 2020, Wish attracted a lot of attention because it sold most of its products at much lower prices than Amazon, Walmart, and other mass retailers. It offered those discounts by connecting overseas merchants, who were primarily based in China, with buyers across the world. Yet its sprawling business model had three major flaws. It attracted unscrupulous merchants who sold low-quality products, it took a long time for the orders to arrive, and it faced competition from similar cross-border platforms like Alibaba's AliExpress.
Wish briefly became the most downloaded shopping app globally during the worst of the pandemic, but quality control issues and lengthy shipping times snuffed out that initial interest. The post-pandemic slowdown of the e-commerce sector exacerbated that pain, and Wish struggled to stay relevant as new competitors like Pinduoduo's Temu entered the market. Wish was even banned in France in late 2021 for allegedly selling counterfeit, dangerous, and low-quality goods.
At first, Wish tried to stabilize its business by offering more generous shipping subsidies to its higher-ranked merchants while aggressively expanding its own logistics network to expedite the shipping process. It reined in its marketing spending to offset those high expenses, but that strategy merely reduced the visibility of its brand and caused its MAUs to plummet. At the same time, its heavy dependence on China backfired as the region's zero-COVID lockdowns disrupted its overseas shipments.
Last February, Wish's founder and CEO Piotr Szulczewski stepped down. His successor, Vijay Talwar, only lasted seven months before resigning. Joe Yan, a partner at Wish's leading investor GGV Capital, is now its CEO. That lack of stable leadership could make it even harder for Wish to stabilize its business.
Is there a viable turnaround plan?
Wish might initially seem like an inflation-resistant play because it sells cheap products to lower-income shoppers. But during the latest conference call, Yan said the company's "value-oriented consumers were impacted by the steep increase in energy and food prices, which translated to a slowing of discretionary spending across the regions."
However, Yan believes Wish can stop the bleeding by improving the consumer experience, deepening its merchant relationships, and achieving "operational excellence" by streamlining its expenses. Yan pointed out that its percentage of on-time deliveries had improved from 82% to 89% between the fourth quarters of 2021 and 2022, and that its customer cancellation and refund rates had declined 58% and 36% year over year, respectively.
Its business also shows some signs of stabilization. On a sequential basis, its MAUs still dropped 17%, but its total revenue declined by less than 2%. Therefore, Wish seems to be shedding its lower-value MAUs while retaining its higher-value users as it reins in its marketing expenses. It also recently announced that it would lay off about 17% of its workforce. As it gradually right-sizes its business, it continues to roll out new features --- including its Wish Clips shoppable videos, Wish Fashion platform for apparel and accessories, and Wish Standards platform for ranking reputable merchants.
Wish won't go bankrupt anytime soon. It ended the year with $719 million in cash, cash equivalents, and marketable securities. But it will likely continue to bleed cash throughout the rest of 2023 as it tries to narrow its losses.
Is Wish a deep value play?
For the first quarter of 2023, Wish expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to come in between negative $70 million to $80 million, compared to its adjusted EBITDA loss of $40 million in the prior-year quarter. It declined to provide an exact top line forecast, but said its revenues had already declined about 15% sequentially so far between the first months of the fourth and first quarters (October 2022 and January 2023). Therefore, 2023 is already shaping up to be another rough year for Wish. It isn't doomed yet, but I wouldn't touch its stock until its sequential growth stabilizes.
